Good morning

The headlines:

  1. Today is the day after March 19th: the ISDA of March (four days after the ides of March – historians, take note). The credit-default swap option auction took place. Dealers agreed to a final value for Greek Bonds of 21.5% of face value at auction. This means that the CDS sellers will have to pay out 78.5% of face value. And Bloomberg is still calling it a $2.5 billion loss (albeit with slightly more covering-of-respective-asses with the data source referencing). Whatever. That amount is yet to be quantified – which it will be, by the quarterly announcements of bank earnings. But on a slightly more positive note, the administrators of the auction indicated that the 21.5% face value was in line with the market values that the bonds were trading at before they went into default. These bonds have just been swapped for bonds worth 31.5% of face-value. That sounds like almost a 50% return. Cheers to the risk-takers: return on investment AND a swap settlement? Someone is back to getting his bonus. Like a boss. Link: CDS Auction and the dodgy math.
  2. Ben Bernanke is returning to his Academic Roots to justify the existence of the Fed. For those who haven’t been paying too much attention to the Republican nomination process (which has been a lot of tedious name-calling and many “victory upsets”, as the journalistic catch-phrase goes), Ron Paul (one of the lesser candidates) has been advocating the abolishment of the Fed. The argument is quite interesting – and is the epitome of the Austrian Economic viewpoint (as opposed to, say, the Keynesian Economic Viewpoint) on Monetary Policy. The argument is basically that the free market can handle itself, and Central Banks cock it up. Fiat money (or paper/electronic money unbacked by gold) is the great evil. And if the Central Bank were not there, the market would naturally gravitate toward a self-imposed Gold Standard (I think it would – if everyone had the right to print money, then we would quickly begin to accept only the forms of money that are most reliable, which would likely be those forms that are backed by professional reputation and some form of real asset). The counter-argument is that the Central Bank has an established professional reputation (albeit “by law”), and let’s ignore the part about real assets. I’m trying not to live on the fringe of economic thought. But I quite like the Austrians. Link: Bernanke’s Publicity Drive.
  3. Australia has passed Julia Gillard’s Mineral Resources Rent Tax, which is basically a 30% tax on Iron ore and Coal Mining. The proposal will allow the current government to lower the general corporate tax rate from 30% to 29%. My question was: if the corporate tax rate was already at 30%, how is this affecting anything? My google/wikipedia search was fruitless. And then someone pointed out to me that the tax is over and above corporate tax. That is: the government calculates an reasonable profit that a normal company would make (a normal profit); and then considers anything above that “supernormal” profit. It’s those profits (which are already after tax), which are then re-taxed under the new proposal. Link: Australia’s Controversial Mining Tax.
  4. And the African Business News in brief. Link: ABN Briefs. The highlights:
    • Several East African countries are reportedly sitting on large supplies of sugar after over-importing last year. They are now looking to move it.
    • Libya’s LAP Green Networks is suing the Zambian Government for seizing its 75% stake in the country’s only fixed line operator. The sale took place under the previous government. When the current government took power, the sale was ruled illegal and the shares confiscated. Not sure where the money went though.
    • Zimbabwe has ordered foreign mining firms to deposit their export proceeds in local Zimbabwean banks. Sigh. It’s all so distressingly familiar.
And that’s all for now.
Have a great Tuesday!